tv Worldwide Exchange CNBC September 4, 2012 4:00am-6:00am EDT
. hello. welcome to today's edition of "worldwide exchange." >> these are your headlines from around the world. >> ecb moves closer to unveiling the bond buying plan as draghi insist it does not breach rules on state aid. david cameron prepares a cabinet reshuffle but george osbourne looks set to survive. use trail yeah's biggest iron ore producers has splashed spending. the political stage moves north from tampa to charlotte where the democrats are kicking off their convention today,
launching president obama's re-election bid. welcome on today's show. the u.s. is back today. did you enjoy the labor day weekend? >> we were laboring on labor day yesterday, which is appropriate, actually. >> and the data starts, right? the data countdown. >> ism today, jobs report friday. so much happening. >> let's remind what you is on the show today. we'll head out to wrbrussels to hear from the man to talk. and we wait for david cameron to confirm the cabinet reshuffle. as the rba leaves rates on hold we head out to australia to hear from jpmorgan.
the democratic convention is set to kick off. one hour into the trade daigle in europe. weighted to the downside at the moment. advances outpaced by decliners. by a little around six to four, a little less than that. let's show you where we stand as far as the ftse 100 is today. the ibex actually up 8% so that market is benefitting from these draghi comments suggesting bond buying wouldn't breach the rules, which is fairly encouraging. euro/dollar -- well, let's show you how that's had an impact on spanish debt yields. up to around 6.8% yesterday, slightly lower this morning. 6.7% is now, gilt firmer, 1.7%.
the hang seng was weighed down by blue chips. south golby down 6.5% after chalco dropped bid. the nikkei continued its crawl to a fresh four-week low dragged lower by airliners and electric and gas companies but sharp shares jumped more than 12% after demanded a management role at sharp as part of an equity tieup. kospi loss 0.3%, loss by carmake carmakers. weakness in industrials and financials sent the aussie market lower. we'll bring you more analyses on crag hi's comment. sensex lower by 0.2%.
moody's changed the outlook of the eu from stable to negative. they said the move reflected negative outlook on largest economy which it already had. and any future changes would then be dependent on rating changes in those countries which seems to make sense. >> luxembourg was one of the nations put on negative along with germany and uk. however the finance minister of luxembourg told cnbc the downgrade was no reason to abandon the single currency. >> it's within our interest to help others to help ourselves. true for luxembourg, true for germany. not not just doing this out of solidarity but also doing if to stabilize our financial institutions and thereby oi economies. in the short term taxpayers might be tired, may not understand everything because they don't see the food in the short term but if they think about it in the long term, i
think it's worth while fighting for a common currency area, even that might be a currency that changes a little bit. >>. >> joining us for the first hour, julien. what were your reaction when you heard those comments? >> fits in with view of what we think the ecb will be announcing on friday. that could be seen to contradicting the ec and in particular for german and others but at the similar time, i think
the ecb is prepared to act in size here prepared there is the adequate conditionality you have the euro group involved. should be a role for imf to be there in term of the technical appraisal of how the program will be working. spain which should be seeing some degree of positive movement to come from this. at the same time we have to bear in mind while this is a positive development, the situation in greece is still, of course, hanging in the balance there. and the economic news such as yesterday with the pmi data is suddenly very bad. >> we'll speak to thomas from the euro group and we can ask him about that part of the equation. >> good idea. >> that's kite hanquite handy.
>> the question is about spain, if draghi lays it out and says this plan is going to if "x" happens i wonder if it means spain won't have to -- >> your issue for this could be tied up behind closed doors and announced as one big package. it would have a much better impact on markets and that's what would happen if this was done in washington. we discuss europe for many, many years and these decisions take time to get knitted together and this is a sequence we've got. we've got that euro group meeting coming on the 14 the of september. that's going to be very important. that's when i would expect there will be some formal request by spain and agreement by the euro group. sources kri
sources citing that spain is ready to negotiate for such a package. a spanish cabinet meeting come on this friday. this week, for example, the spanish prime minister's meeting, chancellor merkel as well this week. there's a lot going on, which i think means that we need to see the bigger picture and expect some package will get knitted together. >> you wonder if people can't just ignore it and say, we've seen the timelines, all these potential at risks and bottom line we have enough to keep this thing going and we could ignore the whole lot of it. >> for me, whenever we get these big announcements, the question is, is there new money involved. if people are stumping up money, then that can matter if it's sufficiently large. we really want to know what the size of the ecb purchases will be and if they are going to be significant in the case of spain. i think they will be but focused by draghi comments.
the central bank will be expanding it's balance sheet further, that will be a source for spain and spain badly needs it because the financing conditions out there in the private sector are still deteriorating. the merry go round of eurozone meetings will not show down. eu president von rompuy. how am i doing? >> perfect. joining us for more is thomas wyser. great to have you with us this
mean. we heard julien talking about expectations perhaps coming out of the meeting mid-month we'll see a big announcement, perhaps a request from spain for aid contingent on the ecb coming to the rescue here. tell us what's conditiif that's with what's happening behind the scenes. >> good morning. i understand the discussion so far has been focusing largely on spain. as you know, we have a current banking recapitalization program for -- and with spain and a first tranche is lying and waiting to be later dispersed in this year once the bottom up stress test has been finalized.
now the question is what next for spain and all of us are waiting with great interest what the governing council of the ecb will be deciding on thursday. i think market expectations are quite uniform on what kind of enter sense can be expected, under which conditions. there may be some who would be expecting or hoping for fairly precise indications of volumes concerned. i don't think that it will be that presigs. >> that's the ecb. what's your understanding of what discussion is spain about having about a wider package of financial assistance from potentially the esfs? >> right. if you look although underlying
issues and imbalances in the spanish economy, i think we need to remember that spain, per se, does not have an enormous fiscal sustainability problem. their overall debt levels are easily manageable. question number two, do they then have a fiscal sustainability issue in the medium term because of banking imbalances. again the answer would seem to me to be no. if you look at most external forecasts for recapitalization requirements they total up to something like 6% of gdp, which is nothing. however, last comments by julian point in exactly that direction. spain as an economy has a
significant net external indebtedness due to the external imbalances of the economy over the last decade. this needs to be financed. this has impacted short and long term interest rate and this has been at the source of declines in market confidence. so do we need a program for spain? the answer is, if spain rn to ask for a precautionary program, then i have a strong reason to believe they would get a positive answer. on the face of it, do they desperately need one? no, dwenl definitely not. the overall imbalances are -- >> could you explain how a
precautionary program would be working and if the imf would be involved in that. >> a precautionary program is pretty easy to describe. it does not necessarily involve finance organize does not necessarily involve a large part of financing for debt of the government concern. these are things and instruments that the imf also has in its arsenal. even though the eurozone states are quite insistent that all our programs are done together with international monetary fund. not only in order to avail themselves and ourselves of the financing capacity of the fund
but also because of the technical expertise, objectivity, et cetera, that the imf additionally brings to the table. as i was saying, theoretical -- >> thomas, very briefly, is it your understanding that -- is it more than likely spain will ask for this precautionary program and how soon? >> i don't have any indication that the spanish government would be asking for such a program any time soon. i said, at present, at present i want to stress, they are doing fine and they have done all the policy actions they have committed to. >> thomas, good to speak to you. president of the euro working group.
>> nelgdmedals will be presente george osborne -- >> george osborne getting booed last night at paraolympic games last night. is finance minister a thankless job? get in touch with us, e-mail us or tweet or get in touch with us directly. we'll take a short break. still to come, australia's central bank sounds less pessimistic about growth. more on that when we come back.
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policy decision take in aus trail. we have this story from sydney. they left rates at hold at 3.5%. waiting for previous easing to work through the economy. analysts are saying the biggest surprise from the announcement was that the statement wasn't more dovish. investigat investors they will have to ease again to offset from china and rba specifically indicated
uncertainty about near term growth there. the feeling is that rates on hold could change faster if prices for iron ore continue to fall. they said prices for key resource exports had fallen sharply in recent weeks. in terms of market reaction aussie/dollar fell. mining giant fortescur days after the firm's teep told us he expected the firm's prices to stabilize. >> the prices have dropped very low at the moment and below the band we expect them to trade in but there's a lot of destocking going on in china at the moment and we expect to see those prices come back to more normal levels. >> fortescue closing down 4.2%, a 28-month low on the sydney
boards. export volumes 3% second quarter compared to 2% import. analysts suggest data bodes well for strong second quarter gdp out tomorrow at 3:30 a.m. central european time. we'll try to get more on what's going on in australia. let's bring in julien. i want to get your reaction to what thomas was saying about how assistance for spain might work. i mean, because you think he's saying maybe the fsf wouldn't impact the market. >> that's the important takeaway. he thought there would be a precautionary credit line put in place for spain, which means it could have a credit line, but that wouldn't necessarily involve the esf and esm coming in and buying the primary market which is a key assumption of the
financial markets. if that's right there will be less skin in the game for the euro group here. and the ecb would have to do all the heavy lifting in terms of the actual debt purchases. if you're the ecb in that situation, you're going to be a bit more restrained about what you might want to do. because you're not getting that equal commitment coming in from the euro group there. i thought that was quite interesting and would lead me to the conclusion that, again, we shouldn't get too optimistic about the outcome of the developments here concerning the ecb and spanish debt purchases over the next couple of weeks. >> let's get back to australian story. chief economist at jpmorgan australia. where do we go now? >> for reserve bank, i think they're on hold for a little while longer. they don't seem to be particularly alarmed about too much at all, frankly. even though we've had commodity prices come off pretty sharply,
i mentioned it today but it didn't seem that alarm pentagon. they mentioned china is slowing down but again, a fairly conciliatory comment around, it's more sustainable growth, part of the plan. last time they mentioned they didn't think the economy was slowing much. that was missing today. in fact, there was a comment about more uncertainty. when you read the whole statement and guidance at the end which word for word what they said a month ago they seem content. where we go from here is not that far. >> is that a mistake n your view? >> not really. they have put quite a bit of stimulus and they cut last year with a 50 point base cut in may. i think that stimulus is still working through the economy. they made that clear today. i think the only real argument as to why you'd want a near-term rate cut is to get the currency down.
the aussie/dollar is down despite that parity in commodity prices but that's not an argument to cut rates. you need more domestic weakness and soft data the last couple of days but not enough to get them to move or they would have done it today. >> do you expect that currency to keep weakening given the softening in the macro picture you mentioned? it's surprising we've seen seen this reaction, aussie slaib dollar 0.2% on the back of that decision today. >> i think the currency's probably going to stay a bit high. i think the reserve bank made the comment today following what governor said a few weeks ago being on the high side. they said today it's high relative to what they expected and that's true given where commodity prices have gone. the problem for the central bank is that there's so much buying of aussie/dollar sovereign bonds by central banks and sovereign wealth funds i think it explains
that disconnect between the economic data weaker and the currency, even though it's come off a little bit, staying very high. it's a problem for the central bank and i detected a few hint in their language today it's something they're a little worried about but not worried enough to cut interest rates any time soon. >> meanwhile, we're getting evidence of foreign banks coming in to support the -- sort of repackage the mortgage market as well. any concerns about australian banks? they have been, obviously, had a lot of overseas funding. >> they have. the four big banks in australia are highly rated. among the top rated banks in the world. the answer is, no, there are no concerns about aussie banks and the reserve banks made that clear with their recent stability reviews saying the banks are in good shape, vastly profitable. yes, they do have a lot of offshore funding still, but even
there over the last three or four years, the banks have aattracted a lot more domestic deposits and therefore, been able to bring down funding ratio that comes from offshore quite a bit. in particular, they've also turned out that debt. it's not rolled over every two or three months now. it's rolled overen every one to three years. they're in good shape. >> thank you for that. turning now to the u.s., democrats get their turn this week as the party's convention kicks off in charlotte, north carolina. delegates will vote to adopt the party platform unveiled monday. echoes president obama's call to tax wealthy americans. michelle obama speaks sprim time today and julien castro will give the key address. mitt romney isn't enjoying the traditional post convention bounce. gallup poll rated 38% as the
acceptance speech was good. stick around, still to come on the program, monetary affairs commissioner olli rehn says they should be monitored by the ecb? a passionate belief, and the foundation on which merrill lynch has been built. today, our financial advisors lead from a new position of strength. together with bank of america, they have access to more resources than ever before. a steadfast commitment to help you achieve your financial goals in life. that's the power of the right advisor. that's merrill lynch.
here are the headlines. the ecb moves closer to unveiling bond buying plan as president draghi insists it does not breach rules on state aid. david cameron prepares a cabinet reshuffle but finance minister george osborne looks set to survive. central bank says it's less certain of outlook on china as australia's biggest iron ore producer has slashed spending. democrats kick off their party's convention toes, launching president obama's re-election bid. we have a little information out of the uk. the new orders has posted
fastest drop since april 2009. new orders are slumping since the '08-'09 financial crisis. that will, obviously, increase doubts about the recovery. there has been an awful lot of sync up between construction data. we'll get more from julien shortly. european stocks right now are down slightly. ftse, xetra dax. >> let's look at benchmark ten year, german bunds edge higher. spain and italy are seeing yields move in following what's happening on the shorter end of the curve on the wake of the reports mario draghi talking about going up to three-year. 5.73 for italy and gilts are
nosing up to 1.6% this morning. currency markets. euro/dollar hit the high on friday. a banking union remn says there should be an emu 2.0, an overhaul of the bloc's architecture to address the weak spots. julien is still with us as well. chris, very good morning to you. how is this going to work? >> i think the thing that is obviously really clear is you don't get european union without european banking union. the question is, how far does that banking union go? i would imagine what people would suggest is maybe that the european banking union should be
within the eurozone and then the rest of the european union, perhaps, you know, if you want, dances around the outside of that subject to the same -- >> if you're going to make the ecb the banking regulator, how does the ecb sit above the bank of england? i don't understand that. >> yeah, that was a really good article on this in "the times" where we had the circle of the dartboard -- >> it wasn't -- >> it was a dartboard because we start in the middle with hard core eurozone and go to the various groupings around how each country was. i think the ecb's role has to be defined because you'll have a lot of opposition -- >> are they capable? if you're going to give it regulatory rule -- >> that's an interesting point and we've had this with uk
regulator and the question is, are the regulators manned with the appropriate man power to dot job? that's the most important thing. that's the first thing that would have to be dealt with. obviously, it's not something that will happen tomorrow but they will have to learn lessons of all the banks around the globe. obviously, would clear would not, you could say, doing their job and deal with circumstances they've not dealt with before. >> the surprising thing is we've had bank regulation for many decades in place and yet it still seem to get things wrong. this should be a technocratic way of doing it. that's how it should be working through at a european level. politics seem to get so involved and spoil how well regulation can be working at -- >> i think it's fair to say, i'm
so old, i remember going into the bank of he can england at barclays to see the chairman. it was a different ball game. regulation has always been there. the complexity of any institution has just gotten -- >> but -- >> but look at all the noise around systems and inc.t. >> andy haldane who was at jackson hole, should we should scrap basel 3. what do you think about that? >> i spent three years talking about that so it would be nice to move on to a different subject. >> you think -- >> his argument is manies have become to complex, trying to fight it with complexity, in fact, creates easier ways for people to get around those specifics instead of having kind of a general framework, instead of principles they adhere to. >> i think this is the bank of
england having a level show which is he can quit to assets which was in the 80s was bank of choice and has gone away over the years. i dond that. i think that is too simplistic. of course, we were discussing this yesterday, you have this whole calculation under basel 2.5. i have to say, i find it difficult to get my head around that. >> what's the point? >> when you have certain instruments on the books where in the good old day you could say loan has 100% of going bad, some have up to 1,250%. you're looking and saying, what are the implications of one of these falls? the whole of the actual -- the issue its supporting could fall. that's the problem. i would love it to be much more simple because i could see how
much more simple that is but the reality is the business is not simple. it's the back end we must consider. >> curious when we look at moving towards european-wide banking supervisor what the real point -- what the practical implications are. we spoke with thomas wieser but it's to cleave regulatory power from national or local authorities. is that really the goal here, basically a sense that in retrospect if it were up to the eu we would have avoided the trouble these national or local banks have gotten themselves into it? >> look, some people could describe it as a bunch of drunks holding each other up, which i don't think i would do -- well, probably not. what are we really saying? if you create a single bloc having each different bloc if you want balancing deposits of the whole, you create something which will do away with the
splintering we're seeing away at the moment in periphery countries and their banking systems. as a european union you can move forward feeling if you want a single european banking system supporting the growth of that bloc. >> the problem you've got there is that if they do try to expel greece from the euro area, then people will impin to doubt the integration of the euro area. >> exactly. >> that's exactly why. any german you speak to quiet will would say, we're not going to let this go out. we've put a lot into this, we believe we have a lull and we need to support it. but the rhetoric we find with all political issues outside is somewhat different. i'm sure you find the same. >> they keep writing the checks. >> absolutely. >> chris wheeler, thank you for stopping by. julien will stay with us. credit suisse and other banks guilty of funneling money
offshore to help clients avoid tax. the chairman of credit suisse says tax evasion on german money is unfounded and cash flow is coming from mother centers to zurich. spanish bank bailout has confirmed it would inject 4.5 in bank ia. on friday, the country's fourth largest bank by assets reported a first half loss of 4.5 billion euros. according to the british retail consortium says august was one of the worst months in 20 months. prime minister is poised to em bank on first cabinet
reshuffle since the may 2010 general election. george osborne is expected to heap his job amid the gloom. >> reporter: we have a few key people likely to keep their jobs. the core leadership team will stay in place, obviously david cameron and nick clegg, between them and a few key positions that will remain. george osborne is likely to remain as secretary. foreign secretary likely to remain with hague and but we've beginning to get the start of this reshuffle. yesterday, late last night we heard the new chief whip will be andrew mitchell, the guy who has to keep everyone in line. it's important to start with that. there will be a new tory
chairman because barroness has said she's left. welsh secretary, too. it's been wildly reported at this stage that ken clark, who's had the justice portfolio will be leaving that position also and wildly reported he'll have this kind of roaming economic brief. real stalwarts of this gvt. he's 72 years old and been in every cabinet that everyone can remember. so a few key positions that will shift about. plus, a distinct possibility or probability at this stage that david will return to the cabinet as well. if you cast your mind back 2 1/2 years to when this government was formed back in 2010, he was the number two in the treasury. a crucial job but only lasted 17 days. he got caught up in an expenses scandal in that first couple of
weeks of the coalition and fell at that point. it's likely he'll come back today. poubl with education brief. plenty more moves expected as well but put this in context. we're halfway through this parliament. the coalition has to try and balance the conserve five presence with lib rel democrat presence. the economy is completely flat and there's been a great dole of derespondency even within the conservative party. david cameron is going to want to stamp his authority on this new cabinet. he's been asked, is he a man or a mouse, even from within his own party? he'll want to assert himself this time around. reuters also reiterating george osborne is to keep his job. becky following the story for all of us. want to get julien's thought on this. does it matter if the people change, obviously if the
presentation won't. >> the underlying budget deficit is running at about 8% of gdp. it's not been showing that much improvement this year because although there have been fiscal measures in place, the economy has been weakening in large part because of the shock of confidence coming out of the eurozone. i think it is extremely difficult for the uk politicians right now. they do need to stick with fiscal plans here because they need to have that credibility with the financial markets and ultimately -- >> how much of a concern is credibility? we're talking about a country with its own printing press, no pressure on long-term -- why should they be concerned with credibility when isn't it time to try an entirely different strategy? >> i don't think that would be so welcome. i think financial markets we can see how they can flare up. there is a significant course of change of strategy.
in the case of the uk as your reports are sharing gilt yields are well below 2. . financing costs are not an issue for large companies that can borrow on wholesale markets. those very low borrowing costs should feed into what banks are charging their customers as well. in a way it seem to me we have actually really strong corporate sector balance sheets in the uk, deposit levels are high. the household sector still has a relatively low saving ratio it's balance sheet is in a relatively stable position. what we need really is confidence here. i think confidence does require clear communication in a very clear strategy. suddenly, although i believe that it the fiscal policy should be oriented here towards meeting its goals because i think that is what will give financial markets confidence. at the same time, they should in my view be looking at ways to encourage businesses to invest. i say businesses on a big pool of cash in aggregate.
not all but many large ones are. if you can give them some fiscal incentives to go out and invest at an earlier stage -- >> fiscal such as? >> investment, if you can bring that forward and precipitate it by offering general tax deductibility at the moment, i think that could actually be quite a helpful way of creating strong onner demand within the uk economy. >> certainly a strategy the u.s. has adopted over the years. >> and germany. >> germany, too. popular around the globe. thanks for your thoughts on that. turning now to south korea where a new economic stimulus package may be in the pipeline. we have more on this from seoul. what's being talked about rhie? >> reporter: finance ministry said the gov was preparing a new stimulus package to support asian's fourth largest economy.
this could be unveiled as early as next week. maybe only $2.1 billion. the government doesn't want to undermine its fiscal position. the new stimulus will focus on reviving private sector by removing regulations. back in june the seoul government announced it would use existing $8.5 billion and state stimulus for second half of 2012 saying there were no plans for an extra budget. but the export relied on economy has been hit hard by shrinking overseas demand with august exports falling for a second month in a row. and comes in as investors price in additional price cut which will be the second in three months' time. >> the global easing shift seems apparent. japan political grid lock postponed a $50 billion transfer to municipalities forcing the bank of japan to flood the
banking system with cash. japan's finance minister held back money and creating a cash crunch. let's take a look at what's on the agenda in asia tomorrow. australia releases second quarter gdp figures at 3:positive a.m. central european time. they come a day after the rba kept interest rates unchanged thailand central bank will announce latest policy decision. in india's fourth largest economy reports pmi figures. after the break, reports suggest corporate china is running short of cash. we'll talk about that when we come back.
do you continue to see a re-appreciation of the yuan or is the -- is the weakness in china now going to put a stop to any of that? >> it's very being because it's obviously very much setting relation to the u.s. dollar and the dollar itself has been appreciating. china has been having inflation. it's dying down now. in real terms, tradeweighted, the rmb has appreciated very significantly over the last couple of years. and i think that is becoming much more of a concern in chinese policymaking circles. i think that they are starting to notice export market share is no longer showing the growth they've been used to. export machine in china is slowing down here. of course, you always have different parts of the government and the part representing the industrial sector here will be putting more
pressure. so i would say i'm looking at much more stable environment here for chinese currency. >> i wonder how stable things are within china itself. there's been a lot of focus on this question of chinese companies running out of cash that as inflation rates slow, undermining their profitability. that's focusing attention on why hasn't policy response been more drastic, been more urgent, been more forthcoming if these chinese companies as officials would know are so reliant on keeping inflation running high? >> inflation, as you say, it a very important issue, particularly food inflation in china. there's the concern that if they ease off too much it's going to come surging back. i think that really explains why there has been that caution in terms of easing monetary policy. we all know there's a lot of easing of monetary policy that can be happening here both in term of interest rates, so i think there is going to be a wariness to have deposit rates going negative in real terms,
which does actually limit a little bit to the downside scope there. certainly in term of reserve requirement ratio, there is a lot of scope there for that to be -- glooit remarkable because if you were a rational market watcher were to say china has to be more aggressive, or they have room to be more aggressive but look at shanghai composite falling to new lows. there's this argument people are so adverse or cautious as to what is really within the black box of a lot of chinese companies they would rather invest in real estate, physical assets, trying to get their money outside the problem. is that the problem here? >> yes. it's hard for chinese people to get their money out of the country so they can invest in a bank and bank deposits and they have been suffering real losses on that. they can invest in real estate, that's where most has gone.
the chinese stock market, good value, if you look at the ratio, it probably is going to come back. but that is going to require some certainty. as we look out to the global economy, over the next couple of years, where you have the u.s. fiscal cliff that is going to be fiscal tightening at 1.5% of u.s. gdp, potentially more coming next year, concerns in europe, a lot more fiscal can consolidation coming through in the euro gloen if not wors-- eurozone if not more. >> you don't think there will be -- >> it's going to be hard to get enough agreement between the next president and congress to ensure there is no fiscal consolidati consolidation. so many programs due to expire and need to be rolled over. and the deficit, although it's been improving somewhat, it's
still actually quite sticky in the united states. badly there needs to be a dose of fiscal consolidation. we would say it's going to be 1.5% of gdp. in the eurozone it's -- if the uk it's 1.25. >> good to see you today. thanks for joining us. german chancellor angela merkel is preparing for yet another meeting today -- >> how is she doing? >> it's one after another after another. she is set to hold talks with herman von rompuy. she's been having down time and having a few beers at a german beer festival. >> this is how she does it. >> the german chancellor did get on stage and called on germany to have solidarity. >> is she on the stage? there she is.
i wonder if she would have a sash and flowers. she looks quite happy. >> she just wants the beer. >> is that post the beer? she looks like she's enjoying herself. >> love it. >> where do we go on the road to the beer festival? >> oktoberfest. still to come, president obama is set to make his pitch for four more years in the white house as the democratic convention kicks off. could the real focus be on friday's jobs report? we'll discuss that.
welcome back to "worldwide exchange." the ecb moves closer to unveiling bond-buying plan as president draghi insists it will not breach rules on state aid. australian central bank keeps rates on hold as australia's biggest iron ore producers slashes spending. u.s. political stage moves from tam that to charlotte where democrats kick off their convention today, launching president obama's re-election bid.
u.s. markets are back open after taking a breather for the u.s. holiday. looks like traders are coming back and bidding up the market. the dow jones is implied to open higher by only ten points, 13,090 is the level. nasdaq looking to add five points. s&p barely in green. take a look at what mood we've been looking at across the globe. fractionally negative, down 0.16% but the cnbc ftse global 00. european markets digesting drag draghi's comments yesterday but the reaction in equities much more muted. ftse 100 is down 0.3% after construction figures.
ibex is up 0.5%. the mirror image of yesterday. >> spanish bond, the key indicators. they are lower this morning than where we were at this time yesterday. post those draghi comments reported in parliamentary meeting. italian yields lower. ten-year gilts still up on the session. as far as currency markets are concerned, aussie/dollar steady at 100.252. friday we hit the high, 1.2690. that's where we stand in europe. we have all the detail on the asian trading session.
>> a risk for asia worsens coming ahead of pressure from the ecb meeting and more data from china. shanghai finished as three-year low. industrials, developers and bankers with losses. beijing announced to set up two more economic zones in chengdu. south goalby shares down 6.5% after chalco dropped it's bid to take control of the coal producer. nikkei hit a fresh four week low weighed down by airliners and gas and electric companies but sharp jumped after home high demanded. the kospi lost 0.3%. losses by carmakers on sluggish auto car sales.
weakness in industrials and financials set the aus i market lower. rba decided to keep rates on hold as expected. india sensex just turned positive. back to you. >> thanks very much for that. we're into the second hour of trading today. u.s. is back today, right, after the long weekend. >> a lot of data due out today. what will be interesting with this jam-packed week whether the focus is back on u.s. or whether it's about the latest policy moves out of europe. >> and the draghi comments this morning. >> big moves on the short end, the two-years in particular. it may be a short week in the u.s. but a ton packed into the calendar. today the ism manufacturing index, july construction spending figures. wednesday revised second quarter productivity. thursday the august adp private sector jobs report, weekly jobless claims, and ism services index. all topped off on friday by
august nonfarm payrolls report. to walk us through all of this is john sylvia, chief economist at wells fargo. good morning. >> good morning. >> what are the expectations for friday's jobs report and is that the most important thing happening this week? >> i would say the employment number is the most important. general expectations are 120,000 jobs, unemployment rate 8.2%, 8.3%. our expectations on jobs are lower than that but i think that's the primary number. the second as you mentioned earlier, the institute for supply management survey coming out later this morning. our expectations is a number a little above 50. and i think that will give a little optimism in the marketplace after being below 50 the last two months. >> are we at that point where good data's bad in the sense
we're walking up to the fed meeting, a lot of back and forth and whether after bernanke's comments in jackson hole we'll get a move from the fed? what's your view on that and will stronger or relatively decent data make it less likely the fed acts? >> yeah. that is the challenge, i think, for many people in the marketplace, kelly. we're looking at employment data. you do get a sense of we're still walking in that middle ground. not an easy case for fed to move. certainly a strong bias to move because i think they're running out of patience with the existing path of the economy. the same 2% gdp number, same unemployment number around .2, 8.3. now is the case for the fed to move ahead. although the economy is not giving the fed a lot of data to work with, i think the fed will move with a little more aggression with respect to
large-scale asset purchases in the period ahead. just because i think they're frustrated with the pace of what is going on now. even though there's no simple change in the path of the economy. >> not that what they do will have any impact, will it, john? >> that's an interesting point. you know, when we look at the impact much qe1, qe2, operation twist, each time the impact on interest rates was really smaller and smaller. what some people would call diminishing returns. the expected strength of the economy is the driving factor for both households and businesses to be very cautious. >> it's not necessarily about interest rates as this portfolio
rebalancing idea you shift people up the risk curve, maybe that you try to -- by pushing on the supply side ultimately reinspire a movement in the velocity of money, that sort of thing. these kind of measures are ultimately what's being targeted, not just interest rates. >> absolutely. one of the great challenges they have, when you look at surveys like the blue chip survey, you get a sense we're stuck at around 2% gdp growth. it's really hard to put people to work given what they see is 2 2% economic growth. you'll see that later with productivity gain or 1.8%, that's our estimate. that's pretty much -- i can get 2% growth with 1.8 % producttivity growth and very little hiring. it's an interesting problem for e. >> does it make the case for the
spending for stimulus come on the fiscal side? it's a period where everyone is worried about the deficit but is there room for the fiscal side to step up when, in fact, we're in danger of going the other way in 2013? this is one of the great debates going on with respect to fiscal policy, how much can you cut, how much did you need to spend? how efficient is some of the spending. you're quite right. there's no real case for dramatic cuts. although i know sometimes this is a red herring for a lot of people. they're the case that fiscal policy need to move ahead. looking at long-run cuts perhaps and discipline but in the short return we still need a little fiscal spending to keep this thing going. >> and john will keep this thing going. he stays with us and will be
back for more. democrats get their turn as the party's convention kicks off in charlotte, north carolina. delegates will vote to adopt the party platform unveiled on monday. mr. romney isn't enjoying the traditional post convention bounce. only 38% rated it as good. that's the lowest since 1996. we'll take a short break. still tole come in the show, david cameron is preparing a cabinet makeover. will the move usher in any real change? we'll get the latest from westminster.
moody's changed the outlook on aaa rating of the entire european union from stable to negative. they said the move reflengted the now negative outlook for the biggest economies of the eu. germany, france, uk and netherlands and any future changes will be dependent on rating changes in those countries which makes sense to me. if you've put the bigger contributors on the budget, surely the eu -- >> the fact eu broadly has a aaa rating, what does that even mean? >> means they have a broader aaa rating. >> with a negative outlook. luxembourg was put on negative rating due to the fallout but the finance minister said the downgrade was no reason to abandon the single currency. >> i think it's in our interest to help others to help ourselves.
something true tore luxembourg, true for germany. we're not just doing this out of solidarity but we're also doing it to stabilize our financial institutions and, thereby, our economies. therefore, in the short term, taxpayers might be tired, may not understand everything because they don't see it in the short term, but in the long term, it's worth while fighting for a common currency area, even if that might be a currency area that changes a little bit. >> mario draghi has given details of his bond buying plan. he's reported to have said buying bonds of one, two, three year maturities would not breach eu rules of directly financing governors. john sylvia is still with us. does the ecb trump the jobs
report this week? >> certainly the ecb has continued certainty in terms of impact in the overall marketplace. i would agree with some of your comment earlier today. there is economic weakness that does impact u.s. exports going forward, impacts the dollar exchange rate, all of which suggests as well as that little bit of fiscal cliff you got in there at the end of the last segment, suggests the caution is the story for the u.s. economy. i would suggest part of that is reflected in the manufacturing number. very weak underlying factory order suggesting as people look forward, a lot of uncertainty on europe, a lot of concern on the fiscal cliff, a little cut back in business investment spending. >> you mentioned watching the program earlier this morning, it is like 3:00 in the morning your time, is it not?
>> it's a little after 2:00. it's exciting. we want to get into the marketplace. you've had a long weekend, interesting things are happening. i thought some of your xhengts were really good. what did you say? >> are you going to bed after this or you just come from dinner? >> oh, yeah, yeah, absolutely. >> i want to -- >> oh, yeah. >> here's the thing, if the ecb does detail out enough of its bond buying plan, you said we need confidence here. how much confidence does that provide to investors say we don't have to worry about a blowup just yet in europe. >> i think what that does, as you know, it takes that part of the -- the euro will fall apart and europe's going to collapse into a depression, takes that part of the distribution and puts it aside in terms of expectations. i think it does help overall in term of u.s. export expectations, the overall u.s. economy in term of expect taking
and our confidence that the european community continues to move forward. and works out its problem over time. i don't think there's any silver bullet. i think people have given up on trying to expect one single element to be a absolutely to the problem. but continuing steps toward a solution seems to be the story right now, i think, in the financial markets. >> stick around. this is like going -- you come and speak to us, it's like you going to a nightclub, isn't it? >> maybe not quite. >> you know, that's what you would normally be doing this time in san francisco. >> you can key up the music for the next segment as well. here if the uk, prime minister david cameron is poised to embark on first cabinet reshuffle since may 2010 general election ushered in the coalition government. becky has been following the story for us all morning. that do we definitively know at this point? >> a few things we know for certain. as certain as can you be in these situations. most of the senior leadership team in this coalition
government will stay in place. david cameron and nick clegg, leadership on conservative and liberal democrats side of the coalition. some of the key figures as well. george osborne chancellor, foreign secretary william hague. we're hering ian duncan smith will remain in his position and work in pensions. michael gove likely to remain in education. it's wildly reported that ken clarke will go. he's had the justice portfolio. set to move to a roving economic portfolio. man in his 70s, been in government for a very long time. we know we're going to get a new torey chairman. a new wlg secretary, too, because the existing welsh secretary has confirmed on twitter she's leaving as well. a few people are off. watch out for return of david laws as well. he was the number two in the
treasury for 17 days at the start of this existing coalition government. he represents liberal democrats. he left after a expense scandal caught up with him. a new chief whip. more announcements throughout the day. >> thanks for that. >> thanks for that, beck. >> just because i wanted to -- i was going to jump in. transportation secretary, it's interesting she's opposed to third runway at heathrow. >> we should mention to viewers outside britain, the question is if there's any policy shift outside personnel change. china investment corp has sold most of its stake in blackrock. cic broet 3% in blackrock in 2009 for $1 billion. the ft says it's gradually been reducing that holding in month,
generating profit on the sales. they are still in track to launch a china-focused fund by early next year. take a look at blackrock shares, completely flat, just barely up at all this year. and it's good to be a kid with loose teeth these days. a new survey by visa shows kid are finding $3 per tooth under their pillow, up 15% from last year. some are receiving up to 20 bucks from the foote fairy. visa has created an iphone app to determine the average pay back a child can deserve. this is sickening. shows how much for molars, incisors and canines were worth when parent were 8. $3 under the pillow? i got -- >> should the fed be targeting tooth price inplace? >> hope this is related in the
cti. >> the tpi rate is very important. still to come, as u.s. politicians trade barbs over the best way to stimulate growth. people really love snapshot from progressive, but don't just listen to me. listen to these happy progressive customers. i plugged in snapshot, and 30 days later, i was saving big on car insurance. with snapshot, i knew what i could save before i switched to progressive. the better i drive, the more i save.
welcome back. let's take a quick look at u.s. futures. didn't see too much movement earlier in the session. now we're seeing the s&p and dow jones moving to the downside. nasdaq is working to add five point but 11 points. two or three for s&p 500. now. to stimulate or not to stimulate, the question dividing many economists and dominating policy discussions around the world. noble prize winner paul krugman has add row indicated for stimulus measures to get the u.s. economy up and moving but steven horowitz, professor of economics at st. lawrence, disagrees. he's here in london and joins us on set. this isn't about paul krugman, it's about whether economies need more stimulus or not.
why not? >> we've had too much government already that has distorted the use of resources. the only way to get the economy, in the u.s. and over here, recovering again is to get markets working again and to enable entrepreneurs to figure out how to reallocate ba, to where they need to go. the problem with government stimulus is it's that kind of government spending -- >> let me ask you this, though, because if you're right from a conceptual point of view, what happens when you still approach quarter after quarter when the math doesn't add up? meaning if you're right about the problem but nevertheless in a situation where you pull back on fiscal spending or whatnot you're mathematically going to put the economy in recession. >> two thing. one, we think in terms of gdp measures and aggregate measures of growth. the problem with those measures is they don't capture the way in which resources are actually being used. even if we're seeing that gdp fall, if that means resources
are move away from inefficient uses toward more efficient ones swresh progress. >> we have an entire infrastructure based on debt to gdp -- the entire structure of the world and economy situation is based on gdp. >> that's unfortunate. it's containskeynesian way of lt it. >> well, yes, i mean, i think it's one one of the comments i suggested earlier but i think the professor has it right. basically, the inefficient use of some of the stimulus money in the united states really misallocated resources. we could have done a better job in terms of how we spent the money. again, even the president made fun of the fact that a lot of projects simply weren't shovel-ready. i think how we spend the money is very, very important overall.
also, finally, i would just comment there is a budget constraint with respect to fiscal spen pentagon. so, as we saw in om of the european economies, spending more money when it's perceived that over the long run it's going to be more and more difficult for you to meet that budget constraint in term of paying that money back doesn't do you a lot of good in terms of perhaps a weaker dollar, a higher inflation expectations, higher real interest rate over time. so i think, again, i think the professor has it right. there are limits to fiscal policy, especially given the large debt to gdp rashs that we have in the united states. >> john, thank you for getting up for us this morning. steve horowitz will stay with us and we'll talk about a alternatives. the debate will continue as we're joined by "time's" steven
the ecb moves closer to unveiling bond buying plan. draghi insisting it will not breach rules on state aid. australia's biggest iron ore slashes spending on fallen demand. u.s. political stage moves north from tampa to charlotte where democrats kick off their national convention today to launch president obama's re-election bid. take a look at what's happening for u.s. future. the first after a long labor day weekend and we're not seeing big movement. gyration around positive and negative territory here. since we've checked in we've seen futures pointed up and down and now dow jones is back up again, looking to add 12 point. nasdaq, maybe a couple point. s&p 500 fighting to stay in the black as well.
european markets give you a sense of what's happening overnight. ftse 100 shedding 0.8%, after weak figures on construction spending. a shuffling of the uk government. cac down 0.5%. following some of the rally we've seen in the short end of the bond market in light of mario draghi's comment. overall, a mixed to partly negative picture as we hand off to the u.s. ross? >> yes. that's where we stand right now. meanwhile, lots of idea already. o one. >> aussie, canada, danish and swedish krona is where you'll see money flow. the sisters. what else are you going to buy? those looking for currency
gains was the bond market affecting hong kong that reflects those gains clearly a disappointment but it's not just a short cycle. people looking five, ten years down the road and views there will be currency appreciation. they fear energy is one of my tips. east africa, the gas, huge gas discoveries made there. and lot of upside there as well. democrats get their turn as the party's convention kicks off in north carolina. delegates vote to adopt the party platform unveiled late monday echoes president obama's call to raise attacks on wealthy americans. michelle obama will speak in prime time tonight and san antonio mayor julian castro with the keynote address.
gallup poll find 38% of voters rate mitt romney's acceptance speech. that's the lowest since 1996. joining for us politics and economy talk is michael grunewald, senior correspondent at "time" magazine. his latest week is called "the new new deal: the hidden change of obama era" and still with us is steven horowitz. michael, i would imagine given your discussion in the book about "the new new deal" that you support what the president has done with regard to stimulus. perhaps would like to see the democrats be more aggressive on this front. >> well, you know, i've been a reporter for 20 years. i'm not really in the endorsement business. but i think there is extraordinary amount of evidence that the stimulus work. that you had in the fourth quarter of 2008 you had gdp dropping at 9% annual rate. you lost 800,000 jobs in january
2009, which was really the bottom. and then you passed the stimulus in february and the next quarter you had the biggest jobs improvement in 30 years. you also had that this is the change you can believe in subtext of the entire bill with clean injury, education reform, laying the groundwork for health care reform, the largest infrastructure investment since eisenhower, largest middle class tax cut since reagan, largest research investment every. this really was -- people think of it as an $800 billion joke but a lot happened in that stimulus. >> the question which a lot of the campaign rhetoric on both sides has centered around this question of, are you better off now than you were four years ago. in your mind, the answer is a unilateral yes? >> yeah. we're definitely better than we were when the economy was falling off a cliff and we had gdp numbers in depression territory. at that rate we would have lost an entire canadian economy in a year?
nobody's pleased with 1.5 to 2% growth, but better than negative and nobody is happy with 150,000 jobs a month but better than negative 800,000. >> stooen, your response? >> a couple thing. the fallen gdp was necessary to get rid of the mistakes we had under the obama administration and throughout ten years preceding. i don't think anyone thinks 9% growth would continue on and on and on. most recessions were deep like that but they were short lived. we didn't need giant government stimulus to get us out of those situations. >> how do we know that without doing it? >> well, the same -- you know,'s argument is the is same. it's counterfactual. the graph that was shown
earlier, we had obama's administration own predictions about what would happen in terms of unemployment with and without stimulus. unemployment has been consistently worse than they said it would be without stimulus. >> would you not concur this downturn was different, that we're facing contrary to the '80s, more of a supply side issue, more of a demand side issue that would argue for a different response? >> this is a financial crisis overlaid on a financial recession. the fundamental issue remain the same, which is we need to get resources reallocated from the mistakes we made a decade or more. the part is allowing those mistakes to be discovered and corrected through the recession process. by stimulus we lock in the mistakes we've done before. >> this is essentially the same argument when president hoover's secretary made. the fact is, depressions are
rough. 25% unemployment turns out to be a lot worse than 10%. the same people are saying the government needs to stay out of this. we say if you get involved you'll have huge inflation, interest rate spiking and that has not happened at all. it's true you can't run a double-blind study of an alternative u.s. economy to see the unstimulated counterfactual. but every empirical study that's been done shows this has helped, raised gdp 2% to 4%, added 2.5 to 3 million jobs which is not enough to fill an 8 million job hole but better than nothing. >> people bring up hoover administration all the time. historical fact of the matter is hoover was the first stimulus spender. everything roosevelt did in the new deal admitted by his own staff was started under hoover from infrastructure spending and everything else. it was hoover's interventions that worsened matters and put us
in 25% rage rather than the 7% -- >> what is your sort of best advice, then? >> i think -- i think we need to get the fiscal house in order. we need to think seriously about entitlement reform. i think that's the -- that's one of the key issues here. i think john sylvia's points earlier that there are limits to what you can do with stimulus because have you these fiscal issues. >> what would you advocate now? >> i think this idea entitlement reform would -- it's an ideological solution in search of a problem. i think it's going to be tough. ultimately, right now there's still a lot of slack in the economy and you need more deficit spending. you can do it through tax cuts. you can do it through
infrastructure investments, research investment, whatever you want but the fact is, right now it's still a weak economy and it can use support. you don't to want go through the austerity like they've done in great britain and spain and have lapsed back into a double-dip recession. i know your other guest seems to think that's somehow -- will help them out in the long run but depressions and recessions are tough. they're tough on deafcies, too. >> michael grunwald joining us from charlotte. steve horowitz, appreciate you stopping by while in london, professor of economics at st. lawrence university. i have a feeling there will be a response. should i look on the blog? >> you might look on the blog. other news, a week after hurricane isaac hit the gulf
coast, half percent of gas production is still shut down. phillips 66 alliance refinery in plaquemines parish is still shut down. new york attorney general's office has launched a probe into private tax equities, if they're converting management fees, attacked at 35%, into investments which may receive a more favorable 15% tax rate. industry expert say the fee waiver practice has been used for years even though some call it risky and potentially illegal. still to come, ahead of key meetings, angela merkel enjoys down time at ba vaif yan beer festival. is there much to cheer about for the euro joan? ♪
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angela merkel is preparing for yet another meeting today as she's set to hold talks with herman von rompuy. >> as the ecb -- great. those were huge. i mean -- >> that's more than a pint. >> that is a lot. that's like a double pint. mario draghi has given indication of his bond buying plan. he's reportedly to have said buying bond of one, two, three year maturities would not breach eu rules of directly financing governments.
we're joined for more. are you encouraged by those reported word? how encouraged? >> yes. i think he's been clear about what he want to do and what he want the ecb to do. i don't think people should doubt -- >> there's no legality so i don't care about objections from anybody -- >> he's saying there's no eu illegality in terms of state aid if he carries out a bond buying program for one to three year maturities. >> >> he said, don't worry about the court -- >> i think the injunctions will rejected on the basis that the thing has been ratified. everybody is clear what the esm is going to do. don't allow direct purchase of
support for banks without sovereign guarantees and a banks license for ecb is ruled out. on issue of ecs as a body agreed by the eurozone governments, i think that the injectiunctions be rejected. >> why are we getting a better response in equity markets? >> i think equity markets -- since also we've had buying volumes are low, people are back to work and people are saying, what's the picture? is the euro cries -- is there going to be action from ecb? what they said -- >> doesn't it seem like the answer is yes? >> yes. >> i'm surprised we're not perhaps seeing more of a bid here people aren't trying to front run activity they expected throughout the fall. >> i think that the longer the equity markets don't recognize
that, in europe and elsewhere -- >> in spain, right, so spanish equities up 20% -- >> and other issues apart from europe. >> that's what i mean. i wonder if it doesn't tell us the fact china is slowing, the shanghai tests new lows is significant and in some ways matters -- >> it's not just euro crisis. we have question of growth being below everywhere and large parts of the major economies not growing at a level which gets unemployment down. those are issue in the mind, particularly for equity markets that if we're not going to see earning growths sustained because revenue growth won't be sustained by relatively low gdp and that will be the picture for the u.s. next year. >> we'll get into that in a little bit. first, a reminder of what is on the agenda in the u.s. this week. we've got ism manufacturing data out today. the key number, though, is the nonfarm payrolls report on
friday. and bob will be back with a preview of what to expect there next. ♪ ♪ i can do anything ♪ i can do anything today ♪ i can go anywhere ♪ i can go anywhere today ♪ la la la la la la la [ male announcer ] dow solutions help millions of people by helping to make gluten free bread that doesn't taste gluten free. together, the elements of science and the human element can solve anything. solutionism. the new optimism.
also july construction figures. on earnings front, catch bell soup and smithfield food will report before the opening bell. big auto report for august. total sales are expected to jump 20% by japanese automakers. honda is expected to surge 61%. tells you what was happening a year ago at this time than now. u.s. future have been looking for direction this morning. dow jones implied to higher by 17 points. similar small gains seen at this point for nasdaq and s&p 500. >> bob, we're going to get lots of reads on the health of the u.s. economy this week. what's, broadly speaking, the diagnosis? >> i think it's the same as before. the u.s. still looks relatively better than europe and japan and other major economies. it's got a little growth but it's still at a growth rate which is not sufficient really to drive the unemployment rate down.
and to convince people incomes will come back and they can start to spend. the consumer remains very cautious. retail sales are pretty iffy. >> what's the fed going to do at the meeting next week, you think? >> i think the fed is more or less laid out its basis of what it wants to do. what mr. bernanke wants to do. and i think we'll probably get some clear picture on whether he's going to act on qe3. i'm not completely convinced he will do that on -- in the next fed meeting, he may delay. the whole issue of that and presidential elections, whether he should do it now because otherwise he'll be seen as being just trying to help obama in the election. >> if he doesn't do it now, then you can't do anything now until january. >> january, yeah. that will be a long delay. on balance you think he will act if he has support -- >> that's the question. that's why steve's interview
with lockhart was fascinating. he sits in the middle and he's a swing vote. and heed this is a very clear call. he's the swing vote. we don't know, do we? >> i think -- i'm sure bernanke will not decide on the basis of his own position. clearly, if mitt romney wins the election, mr. bernanke will be out of office, and he'll probably be out of office anyway because he's had his run. he probably says, i have nothing to lose. my research of great depressions shows the fed has to act sufficiently to do it. if that will be a sufficiently persuasive factor -- >> what's your call for jobs number friday? >> where we are now, 150 or so on an average base. whether the figure is up or below that, i think that's where the average is, which keeps employment moving but not enough to get the employment rate down. >> can describe so much with the u.s. these days.
bob mckee, thank you for your time this morning. before we go, information on a new economic indicator we've been talking about this morning. it's the tooth inflation index. or tooth fairy -- anyway, a new survey by visa shows kids get $3 under their pillow. some are getting upwards of 20 bucks. visa has made an app to show what the going rate is based on a parent's education, location, age and income. >> the tpi, the tooth price index, or the ftpi, the fairy tooth price index. >> i think the fed should consider this in its next -- >> part of the new format. i think they had discussions about it in wyoming last week. that's it for today's show. "squawk box," watch all continued action from there. for kelly and i -- >> have a great day.
good morning. three major stories this week. the ecb will meet on thursday. the global market's waiting for details on that bond buying program. the u.s. labor department will release the august jobs report on friday. and democrats are convening in charlotte to officially renominate barack obama for president. it's september 4, 2012. "squawk box" begins right now. ♪ do you remember september love was changing the minds ♪ good morning, everybody. welcome to "squawk box" on cnbc. i'm becky quick along with joe kernen and